Friday, April 16, 2010

"Picture du Jour: Stock market rallies in context"

Chart of the Day has produced a handy graph to illustrate the magnitude of rallies that followed massive bear markets. For this purpose, a “massive” bear market is defined as a decline of greater than 50%.

Going back to the inception of the Dow Jones Industrial Index in 1896, the Index has only experienced three bear market declines in excess of 50% – early 1930s, late 1930s until early 1940s and during the very recent financial crisis.

The chart below also shows the rally that followed the dot-com bust during which the Nasdaq declined by 78%. “One point of interest is that the current Dow rally has followed a path that is fairly similar to that of the Nasdaq rally that began in late 2002. It is also worth noting that each rally lasted from about 300 to 370 trading days and then moved into a trading range/choppy phase that lasted for a year or more,” said Chart of the Day. In short, the current post-massive bear market rally is by no means atypical.